If there is a recessionary gap, discretionary fiscal policy would likely include action to:
A) shift aggregate demand to the right.
B) shift aggregate demand to the left.
C) leave aggregate demand alone and shift short-run aggregate supply to the left.
D) shift aggregate demand to the right and shift short-run aggregate supply to the left.

Question

Quizplus · Accepted Answer

In a recessionary gap, aggregate demand is not sufficiently meeting the economy's potential output. Therefore, a discretionary fiscal policy would aim to shift aggregate demand to the right, through measures such as increasing government spending or cutting taxes, in order to close the gap and bring the economy back to its potential output level.

If There Is a Recessionary Gap, Discretionary Fiscal Policy Would